Insurers decide prices based on people’s age, marital status and postcode. People wouldn’t accept this kind of discrimination in any other part of their lives, says Jimmy Williams of Urban Jungle
Imagine you were about to make an everyday purchase. Perhaps a pint of beer, a washing machine or some new curtains, and then you found out you had to pay more than the person in front of you in the queue. Not because they had some special discount code or loyalty card, but simply because you’d once been divorced, had recently moved to the country or were a certain age. You’d most likely be outraged but, for some reason, we allow this to happen when we buy insurance.
I think we’ve all got used to the idea that the insurance industry can use its data and models to decide on how much we pay. We accept our profession can impact our car insurance and that renters pay more than homeowners – but that doesn’t mean it’s right.
At our business, we hire and interview a lot of young people, and it’s interesting just how many think it’s completely unacceptable to decide on premiums in this way. They don’t think someone should be denied insurance or have to pay due to factors largely beyond their control.
When I set up Urban Jungle, it was because I was upset at how I’d been treated while I was renting in London. If you’re young and living in shared accommodation, a lot of the insurance industry won’t talk to you, or will make you pay through the nose. Understandably, a lot of young people feel that’s an injustice, and they’re right.
Older people can be impacted, too. Once you’re past retirement age, a whole range of factors apparently make you higher risk, and it’s hard not to feel a lot of this is discrimination.
Honesty is the best policy
One of the best ways to decide on someone’s risk level is the extent to which they are telling the truth. If someone provides information which turns out to be false then that can raise their risk profile. I’ve no problem discriminating against fraudsters, liars or cheats; quite the reverse. But I do have a problem with charging people due to their age, marital status, race, or the country of their birth, and that’s why we take big steps to never do that.
The insurance industry has tonnes of data on us all and has, for many years, created and used algorithms to assess risk. However, if these are used without any consideration of ethics, it can take us down some dark paths. It’s possible to find all sorts of correlations in data and, therefore, deem one person to be more risky than another, because they meet certain criteria.
One demographic may have a higher claim rate than another, but it doesn’t mean people living in that area are more dishonest.
We are now using more and more data – big data – and this is powering the development of artificial intelligence. However, we control what goes into those algorithms and what they should be measuring. When we create such AI-based software without ethics and diversity in mind, we end up with some awful results. AI can learn to discriminate against certain groups, including racial groups, if the initial data suggests it should do so. For example, AI may find correlation with a certain surname, but that surname may be particularly prevalent in a certain ethnic group. If we allow a machine to believe these two factors are linked then it can end up behaving in a racist way.
We have to start bringing more ethics into insurance and working on what factors are causal and where there is simply a correlation. We use data to look for behaviours with indicate that someone is lying or likely to commit fraud, independent of what demographic they are from. By allowing us to pick out those who are lying, we can offer insurance to loads of people that others simply write off for being in the wrong demographic.
Somewhere along the line, someone saw a correlation between a person getting divorced and being more likely to make a claim. There’s no reason why one should affect the other.
In order to provide insurance, you need to establish someone’s identity. The two most important pieces of information are name and date of birth. Once you’ve also got an address then you can be pretty sure you’ve got the right person. You do need a date of birth, because John Smith might have a son called John Smith who lives at the same address. However, just because you take information from people, it doesn’t mean you have to decide your pricing on it.
So, the insurance industry actually doesn’t need to take a vast amount more information to decide on your risk. But, more importantly, it can decide on which factors it uses to decide on your risk – your name and date of birth should not be taken into account. When you’re providing insurance, it shouldn’t matter whether someone was born in this country, lives in a certain postcode, is divorced, married, owns a property, rents or is self-employed.
Everyone accepts that insurance is based on risk factors, but there is still too much generalisation across all sectors of insurance, especially car and home. The notion that someone who rents cares less about their car, laptop or electric bicycle than a homeowner is ridiculous, and the same applies with marital status. Unless you are living with someone who has recent convictions for vandalising or crashing vehicles, it really should not matter whether you are happily married, swingingly single or just divorced and spending the settlement on a new Audi and a luxury holiday in the Caribbean.
That bit of banter highlights the granular nature of insurance nowadays. It is powered by data and insurers and regulators need to recalibrate their thinking for the digital age. One person’s rented property may have a Ring doorbell, CCTV cameras in the conservatory at the back, plus a motion sensor in the shed next to a Honda Fireblade, which is only ridden on rare sunny days. Next door by contrast has no cameras, a spare key under a plant pot round the back and the kids leave their bicycles on the driveways at night. That highlights the nonsense of pricing risk by postcode.
Jimmy is right. The process of placing people in demographic silos IS discrimination, no ifs no buts. On the upside the insurance industry does NOT ask anyone to specify their ethnicity, or religious beliefs, which is the type of crude, socially divisive discrimination that every public sector department does, on a daily basis. But classifying risk by postcode, or age group, has been a very handy, lazy form of shorthand for the industry since the 1990s. Its day is done. We need to chuck away the reporter’s notebook and invest in a new laptop.